Not just a game

Computer and console games have grown to become the single largest grossing entity in entertainment. They`re bigger than movies and music, and if you haven`t paid gaming any attention before, now is the time.
1 November 2007

Gaming is big business. Nobody will dispute that fact. Last Christmas, gaming posted bigger revenue worldwide than movies and music combined. The world has gone gaming crazy, with new products and titles that target everyone from the very young to the very old. Next-generation consoles are making a huge stir as converged media platforms, and vendors and publishers are scrambling for every last scrap the market has left. The momentum has only just begun.

The statistic that claims gaming is bigger than movies and music combined is a popular and accurate one. But it might not be fair to compare computer games to the rest of the entertainment market.

“It depends on how you calculate the figures,” says Rodger Carbonell, sales director for GFK, a worldwide market research company and tracker of electronic durables.

“Gaming is generally more expensive than movies or music, so you must take that into account too. What is relevant, however, is that because of the introduction of next-generation platforms, we have seen a huge growth in the market – between 50 and 60 percent of what is was last year. The market has been booming,” he adds.

In the local market, PC games continue to be extremely popular. Carbonell says that sales hold steady and continue to grow consistently. The console market, on the other hand, is an interesting and diverse one, and is dominated by three key players internationally: Sony with its PlayStation brand, Microsoft with the Xbox and Nintendo with its Wii platform.

Gaming is generally more expensive than movies or music, so you must take that into account too.
Roger Carbonell, GFK
Over the years, PlayStation has been the dominant brand in South Africa, with Xbox 360 being the first Microsoft console platform to be introduced to the market in 2006. Nintendo has always been around, but poorly represented initially. Nintendo`s local distribution agreement was terminated around the time the Wii was launched in this country in September, which meant that the console`s release was delayed. Now Nintendo is distributed in South Africa by the Core Group, which also represents Apple and TomTom.

Floating the brand

Sony PlayStation, represented in South Africa by SK Games, a division of Ster-Kinekor, has been the single biggest brand in local gaming for some time. This is solely because the previous generation of Microsoft`s Xbox was not available in the country and Nintendo was poorly represented. The PlayStation 2 (PS2) was a phenomenon internationally and also dominated the local market.

“Our company didn`t even track console sales until the Xbox 360 was launched,” says Carbonell, “simply because the PS2 was so dominant.”

This year, the much anticipated PlayStation 3 (PS3) was made available locally. It hit the global market at least a year after the Xbox 360, costs considerably more (although it does sport some serious hardware) and suffered numerous launch delays. The PS3 is not exactly a flop, but has thus far been convincingly trumped in most markets by the Xbox 360 and even Nintendo`s Wii. The reasons for this poor performance have to do with pricing, availability and a small range of titles.

Does this mean that PlayStation has been dethroned in South Africa? Not quite – the PS2 continues to be the most dominant console.

“The PS2 is still the best seller,” affirms Carbonell, “largely due to its favourable pricing. It`s far cheaper than the new consoles and is also available in bundles – it`s usually packaged with an extra controller and lots of games. The average price is R1 500.” Compared to the Xbox 360 that starts at R2 600, with only one controller and no games, and the PS3 that can`t be had for under R5 600, it`s obvious that the PS2, while somewhat inferior in the hardware and features department, is a good choice for people who simply want to play games or keep their eight-year-olds occupied. Of course, sales of the PS2 will begin to taper off as the next-generation consoles come down in price.

Gaming gets big!

Computer and console gaming is a bigger business than music and movies combined.

In the console sector, the three dominating vendors are Microsoft, Sony and Nintendo. With sales in excess of 11 million units, the two leading next-generation consoles are Microsoft's Xbox 360 and Nintendo's Wii. Sony's PlayStation 3 continues to lag behind miserably in international sales. As of September 2007, global sales figures for consoles were as follows:
* Sony PlayStation 3 - 4.6 million units
* Microsoft Xbox 360 - 11.1 million units
* Nintendo Wii - 11.8 million units
It has been predicted that the international gaming industry will be worth $48.9 billion by 2011. The Asia-Pacific region alone maintains the highest overall spending on gaming annually, with a yearly growth of 12 percent expected as an average over the next four years. The Europe, Middle East, Africa (EMEA) region is second and growth is expected to take place at 10.2 percent. South Africa is currently regarded as one of the top five territories for growth in the gaming market.

Taking over

Having launched locally for Christmas 2006, about a year after hitting the American market, the Xbox 360 has established itself as a dominant player in South Africa.

“The Xbox 360 outsells the PlayStation 3 in South Africa,” says Carbonell. “It has the advantage of a longer time in the market and the PS3 costs twice as much. Games for the Xbox 360 are also generally cheaper than the PS3.”

Cindy White, product marketing manager for Microsoft South Africa, says retailers are reporting tripling their sales in the gaming category over the last 18 months. Gaming, she adds, has also grown from being something enjoyed primarily by the younger generation to appealing to older audiences.

“Dinner party conversation now often turns to gaming,” says White. “And the evening might even include playing games.”

She says research has revealed that South Africans are willing to spend vast amounts of money on gaming as the brands are an important component of social currency. An indication of the importance Microsoft SA places on gaming can be gauged by the size of its local team of seven managers, which is considerable when compared to other business units.

Microsoft also launched the entertainment industry`s single largest product of all time in September with its game Halo 3. Grossing $170 million in its first 24 hours in the United States alone, Halo 3 officially had a better opening day than Spider-man 3 or Harry Potter and the Deathly Hallows.

“We had 1.2 million pre-orders for [Halo 3] before its launch,” says White. “It was launched all over the world simultaneously and is being branded, marketed and merchandised in the same way one would expect a major Hollywood blockbuster to be.”

Finding a new market

Internationally, Nintendo`s Wii is a phenomenon. While its hardware is substantially inferior when compared to that of the Xbox 360 and PlayStation 3, the Wii is successful in one significant way: it opens up gaming to an entirely new market as part of Nintendo`s new strategy. This is largely thanks to the ‘Wiimote`, or Wii controller, which, thanks to motion-sensing technology, can be used as a tennis racquet, golf club, light-sabre, sword – or anything that game developers think up.

“The Wii appeals to a totally different market,” says Core Group director RJ van Spaandonk. “It appeals to lapsed gamers who played the likes of Donkey Kong years ago and to parents who want their children to be active instead of just slouching in front of the television. It has even found traction with pensioners living in old-age homes in the UK.

Games on other platforms immerse you in a world that cuts you off from everyone else. But with the Wii, you are encouraged to play against other people. It's social and inclusive; it's also less violent.
RJ van Spaandonk, Core Group
“Games on other platforms can be too anti-social,” he continues. “They immerse you in a world that cuts you off from everyone else. But with the Wii, you are encouraged to play against other people in games like ten-pin bowling, boxing and tennis. It`s social and inclusive; it`s also less violent.”

Van Spaandonk says that Nintendo isn`t necessarily trying to compete head-on with PlayStation or Xbox, but is rather creating a new market for gamers, young and old.

Carbonell says that whether or not the Wii can repeat its global success in South Africa remains to be seen. “It will certainly need good infrastructure from a distribution point of view and will have to market itself very well,” he says.

One thing`s for sure: the overall gaming market continues to grow, both in monetary terms and scope. Gaming is no longer just for children and adolescents; it`s really big business. To put that statement into perspective and illustrate just how big one game can become, consider the massive multiplayer online role-playing game, World of Warcraft, published by Blizzard. Internationally, World of Warcraft is played by over eight million people. Each of these players purchased the game for $45 (about R315) and pays a subscription fee of $15 (R105) per month. Two-thirds of these gamers also purchased the first expansion pack to the game called The Burning Crusade for $40 (R280); and they will purchase the next expansion in 2008 for the same price. You do the maths.